Oil prices may gain this week on expectations of further dollar weakness and continued unrest in the Middle East and North Africa, CNBC's weekly survey of market sentiment showed.
"The weak U.S. dollar and ongoing political uncertainty will continue to be the biggest factors influencing the direction of oil prices," said Gavin Wendt, Founding Director & Senior Resource Analyst at MineLife Pty Ltd. "I don't expect any improvement in the US currency and political dramas aren't going away. Oil prices are certain to stay high."
A CNBC poll of analysts and traders expects prices to end this week higher overall. Six out of ten respondents expect oil prices to rise, two forecast a correction lower while the remainder believe prices will remain unchanged.
On the New York Mercantile Exchange Friday, May crude rose $1.55, or 1.43 percent to settle at $109.66 a barrel Friday. That brought crude to a weekly loss, down $3.13, or 2.8 percent from last Friday's close.
Stronger-than-expected growth numbers from China last week and above-target inflation readings triggered further tightening measures from Beijing over the weekend. That may undermine the appetite the resources from the world's second-largest economy.
"Better than expected China data released fueling talks of further monetary tightening could drag oil markets lower," said Serene Lim, Oil Analyst at ANZ after Friday's number were released.
"This will carry over in the coming week, given a light data and short week ahead," Lim added. "Earnings season has been disappointing thus far which has led to risk aversion. Nonetheless, the market will continue to be supported by political upheaval in Middle East."
The conflict in Libya is expected to devolve into a stalemate and this may mean oil output and exports are disrupted for a longer period than previously anticipated.
Also over the weekend, Saudi Arabian oil minister Ali Al-Naimi said markets were oversuppliedand the Kingdom cut output by around 800,000 barrels a day in March. Many observers say this is the strongest signal yet that the Organization of Petroleum Exporting Countries won't act to restrain surging oil prices.
The Saudi move also stands to anger major oil importers who want to see Saudi Arabia, the most influential member of OPEC, play a more responsible role and boost production to help ease prices that remain stubbornly high in the triple-digits.
So far in the Asian trading session, the Saudi news has failed to move prices, which have slipped below $109 a barrel despite the March cuts.
One of the big open questions amongst policymakers and economists is whether the price of oil will undermine demand. Last week the International Energy Agency left its forecast for 2011 growth unchanged at 1.4 million barrels a day. Higher demand in Japan would be offset by lower non-OECD consumption, the Agency said.
Meanwhile, OPEC said that higher prices "will have a slightly negative impact on transport fuel demand worldwide" and cut its growth forecast marginally by 0.05 million b/d from 1.44 million b/d to a daily 1.39 million barrels.
"In our view, higher oil prices are just as likely to erode demand as they are to boost supply, and future revisions from the IEA, EIA and OPEC are likely to reflect this," said Adam Sieminski, chief energy economist with Deutsche Bank.